Devgen Reports 2011 Full Year Results

Devgen nv provides a business update and its results for the twelve month period ending 31st December 2011. During this period, Devgen has reached a key milestone in the development of its Next Generation Hybrid Rice seeds (NGHR™), broadened its current offering of hybrid seeds, improved its market access and strengthened its balance sheet.

Devgen believes the company is well placed to deliver on its goal of shaping the field of hybrid rice in India and Southeast Asia, thus helping farmers meet the productivity increases needed to grow more food on less land using less water, labor and agrochemicals.

Business highlights
• Breakthrough results in multi-location field trials of Devgen's Next Generation Hybrid Rice varieties.
• Solid growth in seed sales in India and Southeast Asia.
• Introduction of new hybrid sorghum and pearl millet varieties and successful start of distribution of cotton seeds in India.
• Registration of three new hybrid rice varieties in the Philippines.
• Progression of key rice biotech traits into the regulatory process in India and strengthening of biotech activities and infrastructure in India and Singapore.
• Cheminova appointed as distributor for Southern Europe for Devgen’s nematicide Devguard®.
• Two reference investors appointed to the Board of Directors.

Financial highlights
• Revenues from seed sales achieving 82% growth in 2011. The gross profit growth from these seed sales in 2011 is fully compensating for the lower revenues from research contracts.
• Research income down 16% following the completion of the 5 year research and licensing agreement with Monsanto Company.
• With operating expenditure in 2011 in line with 2010, operating loss at € 6.3 million compared to € 6.2 million loss in 2010.
• € 26.8 million equity funding completed in April 2011.
• Strong cash position at end of 2011, amounting to € 44.3 million, up from € 28.8 million at the end of 2010.

Thierry Bogaert, CEO of Devgen, stated: “The positive results in the development of our Next Generation Hybrid Rice varieties are a key achievement of the last twelve months. The improvement in yield compared to currently marketed hybrid and inbred varieties that we have seen, gives us confidence that Devgen’s varieties have the potential to be an important catalyst in driving the uptake of hybrid rice in India and Southeast Asia. Our current seed business nearly doubled in 2011, reflecting the competitiveness of our product portfolio of hybrid seeds and the continuing improvement of our market access.”

Business highlights
Next Generation Hybrid Rice and Biotech Rice
Since 2005, Devgen has undertaken a fundamental redesign of hybrid rice in order to develop Next Generation Hybrid Rice (NGHR™) seeds. The company uses an advanced breeding platform that is considerably more efficient than hybrid rice technology currently in the market in India and Southeast Asia.

Devgen’s improved varieties are expected to offer farmers significant performance benefits over existing varieties, including substantially higher yields, improved production efficiencies, better milling quality, suitability for mechanized seeding and desired taste.

In 2011, Devgen’s researchers in India and the Philippines produced hundreds of new and proprietary hybrid rice varieties based on NGHR™-technology. These were then tested during the July 2011 rice-growing season in multi-location trials in India, the Philippines and Vietnam.

The recently completed data analysis identified a substantial number of NGHR™-varieties that gave in these trials a more than 20% yield advantage over the best conventional varieties and a more than 10% yield advantage over the current-best hybrid rice varieties in the market.

Historical examples in many field crops (such as cotton, corn and sorghum) and in many vegetable crops, learn that farmers only prefer to plant hybrid varieties over conventional varieties once they offer a yield advantage of 20% or more.

A substantial number of Devgen’s NGHR™-varieties now reach this commercial breakthrough threshold. The company is therefore confident that it is on track to deliver hybrid rice varieties that have the potential to fundamentally change the farmer’s economics and to drive the adoption of hybrid rice varieties in India and Southeast Asia.

The best NGHR™-varieties identified in the 2011 season now undergo seed production research and are scheduled to enter multi-location performance trials in the upcoming planting season mid-2012.

In January 2013, Devgen expects to select NGHR™-varieties for pilot seed production and market entry through large-scale farmer trials in July 2013. The full start of sales is targeted for 2014.

Regarding biotech rice, Devgen’s pipeline of crop protection (insect resistance and herbicide tolerance) and stress traits in rice made progress as planned. Activities in Devgen's government certified biotech greenhouse facilities in Hyderabad (India) and Singapore were further expanded.

Devgen’s current hybrid rice seed business in India and Southeast Asia
Devgen’s existing hybrid rice business in India and Southeast Asia is centered on a number of premium seeds which offer advantages to farmers over traditional varieties. This product portfolio has allowed the company to establish a significant presence in the hybrid seed segment of these markets.

Devgen strengthened its market access in 2011 and achieved a 40% increase in the sales of hybrid rice seeds versus 2010. This was amongst others due to:
• The solid performance in the Indian private hybrid rice seed market of Devgen’s current hybrid rice seed portfolio.
• The success of Devgen’s hybrid rice seed DG 1 SHS, that is in high demand from Indonesian farmers because of its high yield, excellent taste and adaptation to the farmer’s needs.
• The successful introduction in the Philippines of Frontline Gold™, one of Devgen's newly registered varieties that offers farmers superior yield and grain quality versus currently grown conventional and hybrid rice varieties.

Investments in 2011 have led to a strengthening of Devgen’s product portfolio with new hybrid rice seed products set for launch in India, Indonesia and the Philippines in 2012.

In India, Devgen saw the successful conclusion of farmer trials of two new premium hybrid rice varieties. During these trials, Devgen’s new hybrid rice varieties were grown in several hundred locations across key rice markets in India’s Eastern states. Over 125,000 farmers visited the sites as part of the pre-launch marketing campaign.

The farmers who conducted the tests and those who visited the fields gave highly positive feedback on yield, grain quality and plant type. The market potential of these improved hybrid rice varieties is therefore substantially validated.

Furthermore, extensive seed production trials showed that these products have improved production efficiency over current hybrid seed products, hence an expected lower cost of goods and reduced production risk. Sales of these new products start in the planting season that begins in May 2012.

In the Philippines, Devgen obtained registration for three additional new hybrid rice varieties.

These various necessary steps taken last year, pave the way for the further expansion of Devgen’s seed business in 2012.

Devgen’s activities in other hybrid crops in India
Devgen strengthened its market access in India in its existing seed business in three other strategic crops - sorghum, pearl millet and sunflower. Devgen produces and sells across India proprietary premium seeds of these crops that are seasonally and geographically complementary to rice. The company also started to distribute cotton seeds which complements its portfolio of proprietary hybrid seeds.

In 2011, Devgen realized a 40% growth in hybrid sorghum seed revenues. Devgen introduced an important new hybrid sorghum variety in the market. This product is designed to strengthen Devgen's current leadership of the Indian hybrid sorghum market by having the potential to capture an important share of the so far non-hybridized Rabi (winter) sorghum market which accounts for more than two thirds of the total sorghum market. This new product is expected to offer growers, for the first time, a hybrid variety with equivalent grain quality and taste to traditional Rabi sorghum varieties, whilst providing a significant grain and fodder yield advantage.

Devgen saw a 29% increase in hybrid pearl millet seed sales in 2011. The company successfully completed the first sales season of its first hybrid pearl millet seed adapted to all pearl millet growing areas in India. In its first sales season the new seed was purchased, planted and harvested by over 15,000 farmers across all the pearl millet growing areas in India.

The feedback from farmers was most encouraging, referring to a number of advantages over currently available products including higher yields of premium grain and fodder combined with desirable color and quality. Until the market introduction of this new product, Devgen’s hybrid pearl millet seeds were suited only for the South of India (15% of the market).

The new hybrid pearl millet seed is important for Devgen as it gives the company first time access to farmers in North India, which account for almost 85% of the 10 million hectare pearl millet market.

The market for sunflower seeds was again limited in 2011. Farmer economics were slightly better than last year but still not at sufficient levels to convince them to grow sunflower in a much larger acreage.

Devgen performed well against this difficult market background achieving respectable volumes at prices exceeding last year’s net sales prices. This solid performance was due to the quality of the company’s hybrid sunflower seed portfolio.

In 2011, Devgen acted for the first time as a distributor of hybrid cotton seeds in-licensed from a third party. This distribution activity leveraged Devgen’s marketing and sales capabilities and increased the company’s revenue without increasing its sales force or G&A costs. This activity carries no seed production or stock risk, but contributes only a distributor margin.